Archive for the ‘Debarment’ Category

Last July, the U.K. publisher resolving an enforcement action concerning textbook and other sales in East Africa was Macmillian Publishing (see here for the prior post). This July, it is Oxford Publishing Limited (OPL), a wholly owned subsidiary of Oxford University Press (OUP).

Yesterday the U.K. Serious Fraud Office announced (here) an enforcement action against OPL regarding “unlawful conduct related to subsidiaries incorporated in Tanzania and Kenya.” The conduct at issue included “participating in public tenders for contracts to supply governments with text books and other educational materials for the school curricula.”

Pursuant to a civil recovery order under the Proceeds of Crime Act, OPL agreed to pay £1,895,435.

Under the heading “self referral” the SFO release states as follows.

“In 2011, OUP became aware of the possibility of irregular tendering practices involving its education business in East Africa. OUP acted immediately to investigate the matter, instructing independent lawyers and forensic accountants to undertake a detailed investigation. As a result of the investigation, in November 2011 OUP voluntarily reported certain concerns in relation to contracts arising from a number of tenders which its Kenyan and Tanzanian subsidiaries … entered into between the years 2007 and 2010. [...] The investigation was thorough – involving numerous interviews and an extensive review of documents and electronic data – and completed to the satisfaction of the SFO. The substantial product of those investigations was presented to the SFO [...] The product of that work led the SFO … to believe that [OPL subsidiaries] had offered and made payments, directly and through agents, intended to induce the recipients to award competitive tenders and/or publishing contracts for schoolbooks.”

The SFO release states that “a number of relevant features … led to the decision to pursue a civil recovery order in place of a criminal prosecution.” Those factors include the following: “OUP has conducted itself in a manner which fully meets the criteria set out in the SFO guidance on self reporting matters of overseas corruption” and “there is no evidence of Board level (or the equivalent) knowledge or connivance within OUP in relation to the business practices which led to the case being referred to the SFO.” The SFO release also states as follows. “The products supplied were of a good standard and provided at ‘open market’ values. This means that the jurisdictions involved have not been victims as a result of overpaying for the goods or as a result being supplied goods which were unsuitable or not required.”

The SFO release further states as follows.

“Since the occurrence of the conduct that is the subject matter of the civil recovery order, OUP has introduced enhanced compliance procedures intended to significantly reduce the risk of recurrence of such conduct within OUP. These procedures will be subject to review by a monitor who will report to the Director of the SFO within twelve months …”.

As noted in the SEC release, OUP also “unilaterally offered to contribute £2,000,000 to not-for-profit organisations for teacher training and other educational purposes in sub-Saharan Africa. This was a reflection of the seriousness with which OUP views the course of events that were subject to the investigation and a wish to acknowledge that the conduct of [its subsidiaries] fell short of that expected within its wider organisation.” As to this contribution, the SFO releases states that it “decided that the offer should not be included in the terms of the court order as the SFO considers it is not its function to become involved in voluntary payments of this kind.”

In the release, SFO Director David Green states as follows. “This settlement demonstrates that there are, in appropriate cases, clear and sensible solutions available to those who self report issues of this kind to the authorities. The use of Civil Recovery powers has been exercised in accordance with the Attorney General’s guidelines. The company will be adopting new business practices to prevent a recurrence of these issues and these new procedures will be subject to an extensive and detailed review.”

Finally, the SFO release notes that it ”has previously been subject to criticism in relation to the transparency of the processes and proceedings in civil recovery matters.” Thus the SFO release links to a number of documents including this Claim Form which sets forth specific claim details.

Based on the same core conduct, the World Bank also announced yesterday (here) that “OUP has agreed to make a payment of US$500,000 to the World Bank.” In addition, as part of a negotiated resolution, the World Bank “announced the debarment of two wholly-owned subsidiaries of OUP, namely: Oxford University Press East Africa Limited (OUPEA) and Oxford University Press Tanzania Limited (OUPT) – for a period of three years following OUP’s acknowledgment of misconduct by its two subsidiaries in relation to two Bank-financed education projects in East Africa.”

“OUP is committed to maintaining the highest ethical standards, and we have been deeply concerned to discover evidence of wrongdoing in two of our African subsidiaries. We do not tolerate such behaviour. As soon as these matters came to light we acted immediately to investigate thoroughly and report to the relevant authorities. We have strengthened our management in the region and are taking appropriate disciplinary action in respect of those involved in this conduct.”

The authors note as follows. “While in some areas of the law selling a product to a distributor may insulate a company from liability, the same cannot be said for the FCPA. When a distributor purchases a product, title technically shifts, but if the distributor is seen as acting as a representative of the company whose goods it sells in foreign countries, and that distributor engages in bribery of foreign officials, FCPA liability may very well attach to the company. Consequently, companies need to be careful when working with distributors to ensure they do not engage in corrupt conduct that may wind up costing a company millions in fines and penalties and investigation and defense costs.”

The article next states as follows. “Many companies employ vast distributor networks, sometimes including hundreds, if not thousands, of distributors around the world. Many distributors are more like customers than agents; they merely purchase a product and resell it to others, often in conjunction with other products purchased from other manufacturers. Is it really practical and necessary to conduct full FCPA due diligence on every one of those distributors? Do the U.S. companies in these situations even have the leverage to insist on FCPA representations and warranties in the written agreements, to demand audit rights, and to require certifications by and training of these distributors? The question thus arises whether U.S. companies are faced with a difficult choice either to accept substantial FCPA risk or to devote disproportionate resources to running an FCPA compliance program that fully vets all distributors. We think the answer to this question is ‘‘no’’ and that there is a practical way to minimize the FCPA risk associated with a global distributor network without devoting an unreasonable and disproportionate amount of resources to compliance.”

The practical way?

The authors suggest as follows. “We recommend that companies following a risk-based approach take this risk analysis a step further and focus on the nature of their relationships with their distributors. The goal should be to determine which distributors are the most likely to qualify as agents, for whose acts the company can be held responsible. Think about this as a continuum of risk. On the low-risk end are distributors that are nothing more than resellers with little actual affiliation with the supplier company. On the high-risk end are distributors who are very closely tied to the supplier company, who effectively represent the company in the market and end up looking more like a quasisubsidiary than a customer. [...] Once a company segregates the high-risk distributors that likely qualify as agents and potentially subject the company to FCPA liability from those that are mere resellers and pose little FCPA risk, FCPA compliance procedures can be tailored appropriately. For those distributors that qualify as ‘‘agents’’ and also pose FCPA risk, full FCPA due diligence, certifications, training, and contract language are imperative. For those that do not, more limited compliance measures that reflect the risk adjusted potential liability are perfectly appropriate.”

To be sure, certain Foreign Corrupt Practices Act enforcement actions are based on allegations that executive management or the board was involved in or condoned the improper conduct at issue. For this type of FCPA enforcement action, the title of the article is indeed spot-on. However, this type of FCPA enforcement action is not typical. As noted in this prior post, there are several companies that I call the “World’s Most Ethical FCPA Violators.” These are companies who have earned designation as one of the “World’s Most Ethical Companies” by Ethisphere yet still, during the same general time period, have resolved an FCPA enforcement action or are otherwise the subject of FCPA scrutiny. Companies on this list include: General Electric, Statoil, Deere & Company, Hewlett-Packard, Rockwell Automation, AstraZeneca, Novo Nordisk, and Sempra Energy. For more, see this article from Corporate Crime Reporter titled “World’s Most Ethical Companies and the FCPA.” See also this prior post discussing W.W. Grainger’s recent FCPA disclosure and noting that the company is consistently ranked as one of the “world’s most admired companies” by Forbes.

Say What? (2)

This recent post on the FCPA Blog states as follows. “There’s a reason why you don’t see many of the biggest U.S.-based government contractors on the FCPA top ten list [...]. Not that they didn’t struggle with compliance during the early years of enforcement, but they moved quickly to update their compliance and ethics programs once they saw the tide of FCPA enforcement turning. Then they moved on.”

Say what?

Here is the list of the largest contractors in the government market based on an analysis of government procurement data during fiscal 2010. Seven of the companies in the top twenty-one have, in the past few years, resolved FCPA (or related) enforcement actions or are otherwise the subject of FCPA scrutiny: Raytheon, H-P, KBR, Dyncorp, ITT Corp., IBM, and BAE.

The “U.S.-based” and “FCPA top ten list” qualifiers were apparently chosen carefully in the FCPA Blog post.

World Bank News

Earlier this week, the World Bank announced (here) publication “for the first time a set of decisions issued by the World Bank Group’s Sanctions boards in cases of alleged fraud and corruption.” World Bank Managing Director Sri Mulyani Indrawati stated as follows. “The World Bank Group takes a hard line against corruption, and we believe that greater transparency must be part of that effort. By publishing Sanctions Board decisions, we are making all parties involved in the sanctions process more accountable. This move should deepen the deterrent effect of debarments and enhance the educational value of the Sanctions Board’s findings.”

This recent post provided a Haiti Teleco roundup. As noted in the prior post, the Haiti Teleco case (minus the manufactured and now former Africa Sting case) is the largest in FCPA history in terms of defendants charged – 13. Among the group of defendants were three “foreign officials” charged with non-FCPA offenses including Robert Antoine, the former director of international affairs at Haiti Teleco who pleaded guilty in March 2010 to conspiracy to commit money laundering. In June 2010, he was sentenced to 48 months in prison.

As Samuel Rubenfeld (Wall Street Journal Corruption Currents) noted in this recent post, Antoine, ”who testified twice at trial on behalf of prosecutors in foreign bribery cases had [his] four-year prison sentence reduced to 18 months, and he will soon be out of prison.”

The Chamber and others weigh in on the DOJ’s promised FCPA guidance, a re-run worth watching, the DOJ dismisses its FCPA case against defunct Cinergy Telecommunications, this week’s FCPA disclosure, a World Bank debarment, and reflecting on this “new era” of FCPA enforcement. It’s all here in a souped-up version of the Friday roundup.

Guidance

The conventional wisdom is that when the DOJ announced in November 2011 (see here for the prior post) that it would be issuing FCPA guidance in 2012, that this stalled introduction of an FCPA reform bill. The current conversation thus seems to be focused on DOJ’s promised guidance.

This prior post highlighted how Senator Charles Grassley is curious about DOJ’s guidance and this prior post highlighted how Senators Amy Klobuchar and Chris Coons are as well.

Earlier this week, the Chamber of Commerce (and approximately 30 other trade associations or councils ranging from the American Gaming Association, the Financial Services Roundtable, the Poultry Federation, and the West Virginia Bankers Association) sent a letter (here) to Assistant Attorney General Lanny Breuer and SEC Director of Enforcement Robert Khuzami titled “Guidance Concerning the Foreign Corrupt Practices Act.”

The letter begins as follows. “On behalf of the more than three million businesses and organizations whose interests we represent, we the undersigned organizations, write to request that this guidance address several issues and questions of significant concern to businesses seeking in good faith to comply with the FCPA. Detailed, authoritative guidance on these matters will enhance companies’ compliance with the FCPA by clarifying the “rules of the road” and by mitigating the significant interpretive challenges that companies face when applying the text of the statute to complex real-world circumstances.”

In this previous post regarding the DOJ’s promised guidance I commented that while a welcome development, DOJ’s promise of FCPA guidance in 2012 will not cure many of the issues that are being debated in good faith during this new era of FCPA enforcement. Furthermore, I expect DOJ’s guidance to be little more than a compilation in one document of information that is already in the public domain for those who know where to look. The Chamber letter similarly states as follows concerning compliance programs. “If the forthcoming guidance on this issue consists merely of a recitation in summary form of specific corporate compliance programs that have been adopted pursuant to deferred prosecution agreements, non-prosecution agreements or SEC settlements, the marginal utility of such guidance to the cause of FCPA compliance in the business community will be limited.”

Whenever released and whatever it says, the DOJ’s guidance will be merely that – guidance. What the FCPA needs is not guidance, but limited structural reforms (such as a compliance defense) as well as a change in DOJ policy (such as elimination of non-prosecution and deferred prosecution agreements).

A Re-Run Worth Watching

If you missed “The FCPA Compliance: Yes Or No” debate between Howard Sklar and I earlier this week on Securities Docket, here is the audio replay (approximately 70 minutes) along with the presentation slides. At the end of the presentation participants were asked to vote “yes” or “no” and the vote tally was 68% “yes” 32% “no.” Many thanks to Bruce Carton at Securities Docket for hosting.

Cinergy Telecommunications

In July 2011, Cinergy Telecommunications was added to the Haiti Teleco enforcement action (see here for the prior post). In a superceding indictment, the privately-held telecommunications company incorporated in Florida was charged
with one count of conspiracy to violate the FCPA and to commit wire fraud, six counts of FCPA violations, one count of conspiracy to commit money laundering and 19 counts of money laundering. In addition, Washington Vasconez Cruz (the president of Cinergy) was also charged as was Amadeus Richers (a former director of Cinergy). As noted in this January post by Samuel Rubenfeld (Wall Street Journal Corruption Currents) in a second superceding indictment Cecilia Zurita (a former vice president of Cinergy as well as Cruz’s wife) was also added to the case.

Earlier this week, the DOJ moved to dismiss (see here) its case against Cinergy. The motion states as follows. “The government has recently learned that defendant Cinergy Telecommunications, Inc. is a non-operational entity that effectively exists only on paper for the benefit of two fugitive defendants, Washington Vasconez Cruz and Cecilia Zurita. For several years, these defendants took actions making it appear as though Cinergy was an on-going operational company.” The motion states that “defense counsel recently confirmed that Cinergy is in fact now non-operational, has no employees, and has no assets of any real value.” The motion concludes as follows. “In light of persuasive information the government has developed that Cinergy no longer exists in any real sense and that it was portrayed as existing at least in part to further fugitive defendants’ litigation strategy, the government in its discretion and under the circumstances presented has elected not to proceed with a trial against Cinergy.”

In this prior post, I commented (somewhat tongue-in-cheek) that every week another company seems to be disclosing FCPA scrutiny. So far so good. This week’s disclosure is from Cobalt International Energy which disclosed as follows in its recent annual report.

“In connection with entering into our RSAs for Blocks 9 and 21 offshore Angola, two Angolan-based E&P companies were assigned as part of the contractor group by the Angolan government. We had not worked with either of these companies in the past, and, therefore, our familiarity with these companies was limited. In the fall of 2010, we were made aware of allegations of a connection between senior Angolan government officials and one of these companies, Nazaki Oil and Gáz, S.A. (“Nazaki”), which is a full paying member of the contractor group. Nazaki has repeatedly denied the allegations in writing. In March 2011, the SEC commenced an informal inquiry into these allegations. To avoid non-overlapping information requests, we voluntarily contacted the U.S. Department of Justice (“DOJ”) with respect to the SEC’s informal request and offered to respond to any requests the DOJ may have. Since such time, we have been complying with all requests from the SEC and DOJ with respect to their inquiry. In November 2011, a formal order of investigation was issued by the SEC related to our operations in Angola. We are fully cooperating with the SEC and DOJ investigations, have conducted an extensive investigation into these allegations and believe that our activities in Angola have complied with all laws, including the FCPA. We cannot provide any assurance regarding the duration, scope, developments in, results of or consequences of these investigations.”

World Bank Debarment

Earlier this week, the World Bank announced (here) “debarment of Alstom Hydro France and Alstom Network Schweiz AG (Switzerland) – in addition to their affiliates – for a period of three years following Alstom’s acknowledgment of misconduct in relation to a Bank-financed hydropower project.” According to the release, “in 2002, Alstom made an improper payment of €110,000, to an entity controlled by a former senior government official for consultancy services in relation to the World Bank-financed Zambia Power Rehabilitation Project.” The release further states as follows. ”The debarment is part of a Negotiated Resolution Agreement between Alstom and the World Bank which also includes a restitution payment by the two companies totaling approximately $9.5 million. The debarment can be reduced to 21 months - with enhanced oversight – if the companies comply with all conditions of the agreement.”

What to make of the debarment based on conduct 10 years ago is a bit difficult. This Wall Street Journal Story by Dionne Searcey and David Crawford states as follows. “There was some confusion about the company’s official response. Early Wednesday, Alstom spokesman Patrick Bessy said Alstom didn’t admit guilt in its settlement with the World Bank. “The World Bank made assumptions which were not proved,” he said, adding that because the matter was so old, “Alstom was unable to find evidence it could present in its own defense so we decided to settle.” Mr. Bessy said the blacklisting won’t affect Alstom Group, which has had only one project that involved World Bank funding since 2007. He said the company has several other subsidiaries engaged in hydroelectric projects that aren’t affected by the ban and will be eligible for World Bank funding of their projects. In all only about 5% of Alstom sales are in the hydroelectric field, Mr. Bessy said. In a later statement, the company rejected Mr. Bessy’s comments: “Alstom’s general counsel … stated that any comments that were previously made by Alstom are not valid.”

Reflecting On The New Era of FCPA Enforcement

As discussed in this previous post, in November 2010 Assistant Attorney General Lanny Breuer declared as follows. “We are in a new era of FCPA enforcement’ and we are here to stay.” Thomas Gorman (Dorsey Whitney) runs the always informative SEC Actions blog – see here. In this post, titled “The New Era of FCPA Enforcement: A Time For Reflection” Gorman hit the ball out of the park when he states as follows.

“Perhaps now is a good time to stop and reflect on what the courts and jurors have said about the “new era” of FCPA enforcement. Surely that era should be more than a dazzling array of ever increasing monetary payments by corporations or actions against individuals built on questionable blue collar tactics. Surely it should be more than business organizations spending ever increasing sums to conduct far reaching and perhaps at times unnecessary investigations at huge expense in a effort to win cooperation credit. Surely it should be more than brining increasing numbers of charges against individuals and demanding longer and longer prison terms. Perhaps now is the time to craft meaningful reform to the Act and enforcement policy to ensure clearer guidance and a more balanced application of the statutes to ensure that the laudable goals of the statute in a fair and balanced manner in the future. That would truly be a “new era” of FCPA enforcement.”

For additional reflections on this “new era” of FCPA enforcement, see this piece I published with the ABA Global Anti-Corruption Task Force.

Last week (see here for the prior post) the DOJ and SEC brought FCPA enforcement actions against several former executives and agents of Siemens. As noted in this initial post, the enforcement action comes nearly three years after the Siemens corporate enforcement action, a portion of which concerned improper conduct in Argentina and allegations that Siemens S.A. (Argentina), and those acting on its behalf, engaged in a bribery scheme in connection with an Argentine government contract to produce national identity cards.

The Siemens Argentina individual enforcement actions were brought after the DOJ faced scrutiny for not bringing any individual enforcement action in connection with a bribery scheme “unprecedented in scale and geographic reach” in which there existed at Siemens a “corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company.”

Thus, the Siemens Argentina individual enforcement actions with allegations (and that is all they are at this point) of individual improper conduct are a welcome development and the DOJ ought to be recognized for bringing what will likely be a difficult case to prosecute. Among other things, extradition issues loom, and many of the defendants are likely to aggressively mount a defense.

While a welcome development, two facts remain unchanged by last week’s development.

First, Siemens itself was never charged with FCPA anti-bribery violations for the same conduct its former employees and agents are now facing FCPA anti-bribery charges. The reason is that FCPA anti-bribery charges would have hurt Siemens too much. In its sentencing memorandum (here), the DOJ in explaining its charging decisions specifically stated as follows. “The Department’s analysis of collateral consequences included the consideration of the risk of debarment and exclusion from government contracts.” As noted last week in a Wall Street Journal article by Vanessa Fuhrmans “Shrugging Off Bribery Case, Siemens Gains Favor in the U.S.” (here), “three years after Siemens AG reached a record foreign-bribery settlement with U.S. authorities, the German industrial conglomerate is capitalizing on business from an unexpected place—the U.S. government.” Among things, the article notes that “Siemens today isn’t just benefitting from its ongoing business with the government. It’s made capturing more business and influence in Washington a central part of its U.S. strategy.”

[Incidentally, under the FCPA’s former so-called Eckhardt amendment, the lack of FCPA anti-bribery charges against Siemens would have precluded the FCPA anti-bribery charges the individuals now face. See U.S. v. McLean, 738 F.2d 655 (5th Cir. 1984) (“[B]oth the language of the Act and its legislative history reveal a clear intent to impose criminal sanctions against the employee who acts at the behest of and for the benefit of his employer only where his employer has been convicted of similar FCPA violations. [...] We hold that in order to convict an employee under the FCPA for acts committed for the benefit of his employer, the government must first convict the employer.”]

Second, even with last week’s development, the fact remains that the DOJ and SEC have addressed - through individual enforcement actions - only a sliver of the conduct at issue in the 2008 enforcement action. As alleged by the enforcement agencies, the corruption at Siemens involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe and the Americas. As alleged (see here) “among the transactions on which Siemens paid bribes were those to design and build metro transit lines in Venezuela; metro trains and signaling devices in China; power plants in Israel; high voltage transmission lines in China; mobile telephone networks in Bangladesh; telecommunications projects in Nigeria; national identity cards in Argentina; medical devices in Vietnam, China, and Russia; traffic control systems in Russia; refineries in Mexico; and mobile communications networks in Vietnam.”

Some individual or individuals presumably paid or authorized these numerous non-Argentina bribes. If last week’s development is the only individual enforcement actions resulting from the 2008 Siemens enforcement action, continued scrutiny and asking of the why questions is warranted.

What other egregious corporate FCPA enforcement action might yield future individual enforcement actions? Based on the DOJ’s allegations, Daimler would seem like a good bet. See here for the prior post.

Another week, another FCPA reform bill (and again, no it’s not that bill). See here for last week’s post.

Representative Peter Welch (D-VT) once again demonstrated that he has very little understanding of how the Foreign Corrupt Practices Act is actually enforced, or if he does, that he is more interested in creating the illusion that he is addressing an issue. See here for the press release.

As reported by Samuel Rubenfeld on the Wall Street Journal Corruption Currents page (see here), yesterday Welch introduced the “Overseas Contractor Reform Act.” The bill (here) is a revised version of the impotent legislation Welch previously introduced in May 2010 – see this prior post, a bill that unanimously passed the House in September 2010 – see this prior post.

The bill Welch introduced yesterday, along with Representative Jason Chaffetz (R-Utah), states that “it is the policy of the United States Government that no Government contracts or grants should be awarded to individuals or companies who violate the FCPA after the date of the enactment of this Act.”

This is a sound policy statement. As I discussed in my November 2010 Senate testimony (here) a debarment penalty for egregious instances of corporate bribery that legitimately satisfy the elements of an FCPA anti-bribery violation involving high-level executives and/or board participation represents sound public policy.

However, the problem with the bill, as with the previous bill, is its trigger for debarment - “any person found to be in violation of the [FCPA - defined to include only the FCPA's antibribery provisions] shall be proposed for debarment from any contract or grant awarded by the Federal Government within 30 days after the judgment finding such person to be in violation becomes final.”

As silly as it may sound, in this “new era” of FCPA enforcement or this “facade era” of FCPA enforcement if you prefer (see here) few companies are actually ever “found to be in violation of the FCPA.”

The reason is because of how the DOJ is allowed to enforce the FCPA and it is two-fold. First, most corporate FCPA enforcement actions are resolved through a non-prosecution agreement (NPA) or deferred prosecution agreement (DPA). These resolution vehicles do not result in findings of FCPA violations or judgments of FCPA violations. Second, debarment under the bill is triggered only for violations of the FCPA’s anti-bribery provisions. In the most egregious cases of corporate bribery the DOJ rarely charges FCPA anti-bribery offenses, but rather FCPA books and records or internal controls violations or other non-FCPA offenses (see Siemens, Daimler, BAE, etc.). Why? For the stated reason (see here) of avoiding debarment considerations – both in the U.S. and elsewhere.

Thus, Welch’s new bill again represents impotent legislation despite the fact that there was extensive commentary and analysis of the previous bill’s shortcomings for the above reasons.

While substantively similar to the prior bill, the bill introduced yesterday is different in the following ways: the new bill contains a less restrictive definition of “person,” the new bill defines FCPA to include all three prongs of the statute (78dd-1, 78dd-2, and 78dd-3) and, most important, the new bill has an “exemption for self-reported violations” which specifically states “upon a determination by the head of a Federal agency that a person has reported a violation of the [FCPA] voluntarily to the Federal Government, the head of the agency may exempt the person from the applicability of this Act.”

As noted in this prior post, the DOJ is opposed to “mandatory, conduct-based, debarment remedy for companies that engage in egregious bribery.”